Digging Into trump's Tax Dirt

There's a debate tonight but I don't give a rat's ass because unless trump goes batshit crazy and vomits on everybody this will not change a lot of voters' minds.

In the meanwhile, following up on trump's tax troubles, I spotted a Tweet from John Rogers about reading a tax expert's - Daniel Shaviro a professor on tax law out of NYU - evaluation of the Times' revelations to get a better idea how much trouble trump is in:

2) Trump appears to be an absolutely terrible businessman. This is a man who netted $606 million over nineteen years (from 2000 to 2018) through The Apprentice, licensing and endorsements, and investments and businesses run by others, and yet has created enormous financial peril for himself by buying prestige business properties for high prices, and then pouring cash into them without thereby generating positive net returns. Even with the cash infusions, his personally run businesses have continued to lose a great deal of money (even leaving aside depreciation deductions that might or might not be accompanied by actual declines in economic value). One therefore suspects that he is simply funding the negative cash flow, not creating new value that might pay off in the future...

3) As a matter of net worth, Trump appears not to be rich (despite his having inherited a large fortune). The impending financial liabilities, and selling off of assets (plus taking out of loans) to keep the cash flowing is only one reason for concluding that, as a matter of net worth (as distinct, from say, lifestyle), Trump does not appear to be rich. Consider that, from 2000 to 2018, his net profit from assets – his own businesses, plus investments in businesses run by others – is only $4.2 million (the excess of his investment gains over his business losses).

This is about $220,000 per year. Just as a very general ballpark comparison, if you were earning $220,000 per year from assets that offered, say, a regular 4 percent annual return, that would imply that you were worth only $5.5 million...

While 5.5 million isn't something to sneeze at for middle-class folk, trump has been selling himself as a BILLIONAIRE, of which 5.5 million is metaphorically pocket change (think about the $2000 you got in your checking account compared to the three quarters, two dimes, and five nickels in your change dish).

What trump is doing, from what I can tell, is create the illusion of wealth in order to convince others of it: Spending lavishly and indulgently on luxury items as though that's all there is to it. Thing is, that kind of wasteful spending helps explain why trump also appears to be massively in debt. Back to Shaviro:

4) There is nothing wrong in principle with using true economic losses to offset the tax that would otherwise be due on gains – but it also isn’t clever tax planning. The late, great Martin Ginsburg – a famous tax lawyer and the spouse of the recently deceased Supreme Court Justice Ruth Bader Ginsburg – once jokingly described what he called the “Herman tax shelter.” The idea was that, if you need, say, a $1 million tax deduction, your fictional accountant Herman could say: “Give me $1 million, I’ll steal it from you and go to a country where you can’t reach me, and voila, you have a $1 million theft loss.”

The gist is: Planning to get a deduction is useless if the plan involves you losing too much money in the first place. If that's all that trump is doing here with reporting losses to the IRS every year, it would still be reckless behavior because it's all focused on the now (short-term) and doesn't allow to invest or plan long-term, which cuts into profits down the road. In short: trump's an idiot.

We therefore should distinguish between (a) Trump’s losing so much money over the years – be it from bad luck, bad judgment, or incompetence – and (b) his also taking a number of tax positions that, as I discuss next, appear to be questionable or even fraudulent. The real losses rightfully offset tax on the gains, insofar as using them in the way he did was legally permissible, and the adverse inferences to be drawn from them lie outside the tax system (although again, as per the fallacy in the “Herman tax shelter,” they do not reflect clever tax planning).

The fifth point on Shaviro's list answers a long-standing argument about trump's refusal to go public with his tax returns. A lot of his critics believed his excuse of getting "audited" by the IRS was asinine, but it turns out the IRS *is* investigating him for a questionable refund filing from 2007-09. So Shaviro looks at that and I want to quote him in full:

5) The ongoing IRS audit dispute regarding a $72.5 million loss deduction looks very bad for Trump. The Times article suggests that the key issue, for most or all of this claimed loss, is a “worthless stock deduction” from abandoning his interest in the disastrous Atlantic City casino venture. Many years ago, when I was in tax practice, I actually worked on this precise legal issue (for a corporate client of my law firm), so I am quite familiar with it. When you own equity (such as Trump’s partnership interests in the Atlantic City activity) that has lost enormous value, typically the equity constitutes a “capital asset.” If you sell it for an enormous loss, that is only a capital loss, and deduction of the loss is limited to the sum of (a) net capital gains for the year, and (b) $3,000. Disallowed losses are carried forward, but at $3,000 per year they may be worth very little, unless your income in future years includes large capital gains. But if the investment is utterly worthless and you abandon it for zero consideration, it becomes an “ordinary” loss (i.e., one that is not subject to the limits on deducting capital losses).

Trump apparently did this with his Atlantic City partnership interests, and claimed an ordinary loss that seems to have made up much or all of the $72.5 million. But he received back a 5 percent interest in the stock of the new entity. As the Times article rightly notes, this could establish that the entire abandonment loss claim was legally invalid. He would merely have sold his once-valuable asset for a large capital loss, the use of which would be sharply restricted as described above. The Times notes that losing on this issue – as it appears he should, if the stated facts are accurate and relevantly complete – would cause him to owe the IRS about $100 million, given interest on the prior refund. This leaves aside the possibility of civil or criminal tax penalties for claiming an abandonment loss despite receiving consideration back.

We're now getting into the criminal stuff in trump's tax returns, and also why trump is so desperate to cheat his way into a second term to avoid prosecution. Rather than take the capital loss which was limited, trump filed for the ordinary loss to get unlimited return... even though the stocks he received from the transaction did not make the loss worthless. This is tax fraud, and unless his lawyers beat the IRS into submission (or he bullies them directly, which would be an abuse of office) trump is going to pay one way or another.

It gets more serious from here:

6) The consulting fees that Trump’s various foreign businesses paid to Ivanka Trump and others look potentially fraudulent. The Times article cites 20 percent consulting fees that foreign Trump businesses regularly deducted by reason of paying them to unnamed consultants. Some of these fees pertained to activities in which Trump’s role as an investor was ostensibly entirely passive, meaning that he wasn’t engaged in making any of the business decisions. Consulting fees also appear to have been paid to family members such as Ivanka Trump. She got consulting fees with respect to businesses for which she simultaneously worked as an executive, and thus as an employee.

Based on what the article says, several different types of fraud may have been involved here. Fees paid to family members who did not provide services in return would be improper deductions. Fees paid to “consultants” who were employees might be properly deductible by the business – as salary – but would potentially trigger 3.8 percent payroll tax liability by the recipient under the so-called Medicare payroll tax. Fees that were actually gifts to family members were not properly deductible, and also may have generated gift tax liability on Trump’s part that the mislabeling helped to conceal.

From what I can tell, the trump family was double-dipping, getting paid twice for the same job (with the second "job" a no-show consulting excuse). Violations of payroll tax and Medicare tax codes. This is where it's not just trump on the line, it's the whole fcking family.

7) Other improper deductions that may have been claimed fraudulently. The Times article notes several different types of improper deductions for business expenses that appear to have been personal, and hence not allowable under the federal income tax...

In short: This is where the jokes about $70,000 haircuts come in. Seriously though:

Similarly, the Times article raises serious questions about deductions for a residential property, described by Eric Trump as the family “compound,” on the ground that it was an investment property being held for profit. The very year after the investment designation was made, Trump claimed a deduction for a charitable easement that precluded development of much of the property. Happening just a year later (and possibly foreseen), this would only add to the difficulty of establishing the requisite profit motive.

A further instance of potential fraud relates to deducting legal fees that may have related to Trump’s 2016 presidential campaign, rather than to his business activities. This may even include the hush money payment to Stormy Daniels, if it was improperly amalgamated with actual legal fees...

And this is where the state attorney's investigations into trump kick in. Where the IRS is one level of trouble, the state of New York is a level trump can't bully or hinder (thank you, Separation of Powers between State and Federal). This has been where the tax returns fight had been at its harshest, with trump fighting tooth and nail to prevent the local DA from getting into his financials. Well, it looks like that's a little too late...

Much like the debate happening about... oh RIGHT NOW... these revelations won't change a single mind among the 40 percent that makes up trump's rabid fanbase.

But these revelations expose just how weak trump's position truly is: facing likely criminal charges and civil lawsuits (he can delay the former but facing too many of the latter), trump is relying far too much on foreign creditors and foreign dirty money to survive even day-to-day.

This unfortunately makes him dangerous in an election cycle: trump has every reason to cheat to stay one step ahead of the law he's supposed to uphold.

This thankfully also makes it easier for the rest of us to understand what's at stake and vote the thieving con artist out of office.

We need to do this, America. We cannot survive with a tax fraud and financial disaster running the White House.